AUD: Inflation remains low, but risks of another shock weak report are fading - TDS

Research Team at TDS, notes that the Australia’s Nov monthly inflation gauge rose by +0.1%/mth, leaving the annual rate at +1.5%/yr.

Key Quotes

“For the RBA, the trimmed mean measure rose by +0.2%/mth, boosting the annual rate to +1.1%/yr. According to the monthly inflation gauge the low point in both tradable and domestic inflation has passed, limiting the scope for a shock “downside” print for Q4 CPI. Overall, we see the RBA remaining comfortably on the sidelines well into 2017.”

“We now have two/three monthly inflation gauge prints for the December quarter, and another ’more of the same’ official ABS quarterly CPI report is expected. While there isn’t a “perfect” historical relationship between the monthly and the more comprehensive official quarterly inflation report we expect a step higher in both tradable and domestic inflation for the Dec qtr (released 25 January 2017).”

“Subject to a shock December monthly print, we expect the official Dec qtr trimmed measure to ease from 1.7%/yr to 1.6%/yr, and combined with the weighted median measure, our overall “underlying” inflation forecast eases slightly to 1.45%/yr. This would be yet another print that is in line with the RBA’s 1½%/yr projection.”

“The trend pickup in the monthly measure of domestic inflation is worth noting, even if the monthly measure has recently under-estimated the official measure. Q2 domestic CPI picked up from 1.6% to 1.7%/yr, and we see another grind higher towards 2%/yr for the Dec qtr.”

“Tradable inflation is also grinding higher, with the monthly gauge historically leading the official measure. The RBA in November said “the boost to the prices of tradable items from the earlier depreciation of the exchange rate appears to have largely run its course”, but petrol prices are expected to drive the boost to Q4 inflation, up nearly 5% so far in the quarter.”